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Deliveroo users experience the anxiety of waiting an hour for a red-faced cyclist to deliver a lukewarm hamburger. Investors in Europe's food distribution application and rival Uber Eats are also likely to go hungry as the two parties vie for market share.
Uber is in preliminary talks to buy London-based food delivery start-up Deliveroo for more than its latest $ 2 billion valuation, Bloomberg reported Thursday. Dara Khosrowshahi, chief executive of the American running giant, signed an agreement with founder Travis Kalanick last year: he wants Uber Eats to become the world's largest supplier of meals.
Deliveroo would be a big mouthful. According to information provider Crunchbase companies, mainly small technology companies, Uber has made only six acquisitions to date. Integrating a well-known brand with 2,300 employees and a popular app would be a new challenge for Uber, which has traditionally focused on growing its business, despite opposition from licensed taxi drivers and local politicians.
Nevertheless, Uber's recipe for making money by delivering food in Europe probably starts with the exit of a rival.
Around the world, Uber Eats is a good point for his loss-making parent. It is profitable in 27 of the 108 cities, The New York Times reported last year and is sometimes more popular than Uber's business in Tokyo and Seoul.
But in Britain and other European markets, Uber Eats is behind Deliveroo and other local services like Just Eat and Delivery Hero. Last year, its share of British order volume was between 5 and 10%, according to projections by the UK antitrust authorities. Deliveroo was double.
Although the financial performance of Uber Eats is secretive, it is reasonable to think that it is expensive to bring home meals to its application. Deliveroo reported a loss of 129 million pounds in 2016, the last year for which figures are available – more than earnings. The company's gross margin, or sales less immediate costs such as paid riders, was 0.8%.
Together, Uber and Deliveroo could make a better choice for restaurants and diners. They could also alleviate expensive promotions. Paying in cash would limit Uber's cash flow and give Deliveroo investors exposure to future growth. Mr. Khosrowshahi should fill his belly.
Liam Proud is a columnist at Reuters Breakingviews. For more independent comments and analysis, visit brokenviews.com.
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